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Ben: So, I'm here with my good friend and colleague, Michael Bridges andwe're going to briefly talk about a way that consultants could price forbetter effects. Hi Mikey, how are you doing?

Michael: I'm good, thank you.

Ben: Cool, cool. So, this is assuming that we're talking about a fairlyrepetitive job. Something that you're going to do more than once and thatyou have some idea of how long it's going to take.

Michael: Okay.

Ben: The idea is to get away from charging by time and the reason I want toget away from charging by time is this simple equation. If you chargepounds per say hour for example, the next question a person tends to askyou is how many hours is the job going to take, right?

Michael: Yeah. That happens a lot.

Ben: Because that happens a lot, the math is actually quite simple. What washappening is that the hours bit should cancel out. It does cancel out whichmeans why don't we just cut to the chase and just go straight to pounds perjob. If we do that, we don't have to get into this discussion about it andwe assume the risk from the client as to how long the job's going to take.

Michael: Of course.

Ben: Which because of risk reward in the long run means we should make moremoney, right?

Michael: Hopefully so.

Ben: It would be nice, but we need to do it carefully because of this. So,I'm going to just draw a couple of little axes here and just spend a momentto explain what they are. This is the job time let's say in hours, okay,over here. What I'm going to draw you is something called a probabilitydistribution. Now, I'll label the other axis; what's going on up here isit's the probability that a given job takes that amount of time, okay so,or the proportion of the jobs that take that time more accurately.

What it is is that no jobs take no time now or it's not jobs in generalit's a particular type of job. So let's take an example. Let's say that weare going to go and service somebody's computer and it's a fixed checklistthat we go through and it could take Mikey, how long does it take you as aminimum?

Michael: Maybe 40 minutes.

Ben: Okay and then the worst case that's ever happened?

Michael: A very slow computer, very slow to respond or heavily laden withviruses or something along those lines could take two hours.

Ben: Okay, so a bad one's two hours and a calamitous one could be longer thanthat, right?

Michael: A calamitous one I'd probably draw the line under the computer waybefore that if I've got that feeling.

Ben: Can I just for the diagram say, okay, I'll put 50 minutes. So, I'll justcall it an hour.

Michael: You can yup.

Ben: With all the preamble and everything?

Michael: Yeah.

Ben: Just to make the diagram clear. All right, so we've got a few facts ofideas here, okay? We're saying that it's never going to take realisticallymuch less than .75 of an hour. So, no jobs or maybe very few are less thanthat. The average I asked you is an hour and then what happens is somethinglike that, right? In terms of the distribution. So we need to be carefulwhat this thing actually means. What it means, old jobs are contained orthey're into this curve if you go to a long enough time.

Michael: Yeah.

Ben: I could actually demonstrate that by just quickly locking off the buttonhere. You said you would cap the event, so at this point you're just goingto say if I've sunk five hours into this thing that's it, it's game over,but all jobs take somewhere between no time and five hours. Pretty selfexplanatory, but when you in your mind think about how long a job takes yousave one hour on average. What we actually meant and that's I think yourbrain's thinking of that point, right, the most common or the modal point.

Michael: Yes.

Ben: Yeah, so if we were to charge based on the mode, i.e. the most populartime that it takes, we are causing our self a problem because the meanamount of time it takes actually isn't there. I don't know where it is andit depends on the shape of this curve, but I know with this type of curve,it's definitely over here somewhere. It's to the right. So, let's justimagine that the mean is say there. The mean amount of time and that's thenormal average that people would think of. It's the arithmetic mean, it'sthe total amount of time it's taken me today say do 100 jobs if that's 100hours or 150 hours let's say to do 100 jobs. Then if you took your 150hours to do 100 jobs the mean is 1.5 not one.

Michael: Yeah.

Ben: So, by taking the risk for the client, what we're saying is let's chargethe mean amount of time but not talk about the amount of time. So if yourhourly rate just to keep it really simple is 100 pounds then at this pointat 1.5 hours mean time, we should be charging 1.5 or 150 pounds not the 100pounds over here that you would be tempted based on the mode to charge.Does that make sense?

Michael: Yes, it does.

Ben: That's what you're getting for charging based on, that's not a verticalline but we get the idea, that's what you're getting for charging based onthe fixed price based on the mean amount of time it takes you. Nevermention the time. The client's say it's going to cost me 150 poundsregardless of how much time it takes. Let's just get rid of that thing.This by the way, anybody looking that's coming at my screen is a useful appjust as a side because I can't stop it at this moment and that is justsomething to remind me to have a break and look away from screen,but I'm not going to do that in the middle of the screen cast so there yougo.

So, charge the mean amount, charge a fixed price, and assume the risk forthe client make more money in the long run. If the job takes much less timethen you're in a good place because as long as the client understands thatit might be quicker than they expect and don't get upset about how quick itis then you're in a good place. If the job takes absolutely ages, well in away you're still in a good place because if you said to the client, lookyou know, this typically takes I would probably say the mean. It typicallytakes an hour and half, right? Then they're generally happy with how quickit was and if it takes a lot longer the moment you go over the hour and ahalf they're also happy because they know that you are not charging themanymore but that you're still busting a gut to get the job done for themand . . .

Michael: Quick question though. You just ran a . . . you basically equatedit to pounds per hour again. So, if you said to someone it's going to . . .let's say we aim for the mean here and said 150 pounds.

Ben: Mm-hmm.

Michael: They say, well, how long is it going to take, if we're going foran hour and a half . . .?

Ben: Mm-hmm.

Michael: . . . or an hour they're immediately going to do the simple mathand go straight back to pounds per hour.

Ben: Okay, good, very good question. So, when they say how long is it goingto take say it takes as long as it takes to get the job done to thestandard that I do it to because whatever standard it is, it's a highstandard.

Michael: Yes.

Ben: So it takes us as long as it takes to get the job done. Typically thattakes an hour and a half let's say. Choose the hour and a half not the hourbecause obviously if they're saying 150 pounds if they do, do that divisionit makes your hourly rate look lower. So, typically it takes an hour and ahalf. You know in your mind actually the most likely is that it's going totake an hour and you could say look, it could take as little as half anhour. I have to tell you that if it goes really well and I've had some jobsgo really badly and they've taken a few hours and if necessary that's whatit takes, but it's going to be a fixed price for you; does that make sense?

Michael: Yes, definitely.

Ben: Fantastic, so that's my thoughts on fixed price charging and that's it.Thank you for listening. I hope you find it useful.